Can PSU Banks Catch Private Peers in Digital Banking ?

October 19, 2016

The increasing penetration of smartphones and internet availability on these phones coupled with Aadhaar have made onboarding of customers easy for new players and reduced switching cost and transaction time for customers. The stage is, therefore, set for a large scale disruption of the Financial Services industry, both on the liability gathering side (which will largely become cashless) and on the lending side (where loans will become more personalised and smaller).

Analysts are of the view that mobile wallets and payment banks might not be profitable on their own but would be successful as a part of a bigger ecosystem of services and financial services products. In specific, combining mobile wallets / payments bank with market places, telecom services, entertainment services, investments and loans could be a profitable proposition for these players. The inability to lend is not a hindrance for payment banks as they can simulate a traditional bank by using credit assessment technology and then tying up with a traditional lender for supply of funds.

In the Short to Medium term, the Indian financial space will see a disruption with Digital payments replacing credit and debit cards. The players that can capture a bigger share of the payments ecosystem could be the big winners in the new regime. This is because even if the banks/ payment banks/ wallets don’t make much money on payments itself, the data generated from payments would be immensely powerful for selling loans and investment products as also selling other goods and services.

PSU banks seem likely to lose market share at an accelerated rate on both sides of the balance sheet. The same fate awaits private sector banks which are not able to respond to these multiple layers of technological and regulatory changes.